When you're ready to buy a home, make sure your finances are in good shape BEFORE applying for a loan. A solid financial standing will help to ensure a smooth mortgage loan application. It could also establish you as a premiere buyer that property sellers will favor over other buyers. Here are a few tricks to help you get your finances in order before you purchase a property.
Check Your Credit Score
Get a copy of your credit score from one or more of the top U.S. consumer credit monitoring agencies. Review it to be sure it is up to date with complete and accurate information. Checking two credit reports will make it easier to catch discrepancies. Report any errors to the agency so that they can be corrected. Pay your bills on time to keep your credit score as high as possible, aiming for a score of 725 or higher to get the best loan terms.
Pay Off Consumer Debt
Pay down or eliminate any bills and outstanding credit balances you owe. When you apply for a loan, the amount of debt you owe will be considered in terms of how much of a mortgage you can afford. Use the "Debt Snowball" system. Start by paying off smaller balances. Then apply that payment you no longer need to make to the next balance to be tackled. Work toward a healthy debt-to-income ratio that will be acceptable when you apply for a mortgage loan.
Save for a Down Payment
Trim your monthly budget to cut costs, and deposit more of your income into a savings account or an investment portfolio for a down payment on your property purchase. This would be a good time to sell things you no longer need or to get a part-time job and add more to your savings for a down payment. The bigger your down payment on a property, the smaller mortgage you will have to borrow, which will make it likelier for your loan application to be approved.
Shop for the Best Home Loan
Compare terms for several home loans to get the best deal. Although the interest rate may be similar to most mortgage loans when you apply, you might be able to get a discount for opening a savings account or checking account at the financial institution where you plan to finance your property purchase. A high credit score and low debt balance can also help you get the best available loan rate.
Take steps now to prepare for buying property by assessing your financial resources and credit score. A few minor adjustments can help you save thousands of dollars over the life of a mortgage loan when you are ready to purchase a property.
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